IX. Privatization

The first phase of the Brazilian privatization program began in 1981 and was characterized by the re-privatization of companies that had been absorbed because of their bad financial situation. Between 1981 and 1989, 108 companies were included in the privatization program. During those years, the companies privatized were small and, therefore, the economic significance was modest.

The second phase of the program began in 1990 as a fundamental part of the Collor government's reforms. During 1990-1992, 32 state-owned companies in the productive sector and 32 minority participations were included in the privatization program. From 1991 to 1993, the program concentrated its efforts on selling the state-owned steel, petrochemical and fertilizer companies.

The third phase of the program began in the Itamar Franco administration. Several legislative changes were introduced. They included such items as the increased use of domestic debt for purchase payments, the sale of the federal government's minority participations, and the authorization for foreign investors to acquire 100% of a privatized firm's voting capital. The Itamar Franco government privatized 18 companies, receiving US$5.1 billion in payments. In 1994 the program receipts approximated US$2 billion — 72% in cash equivalents. This procedure also was effective in reducing the public debt because part of the revenues were used to buy back short-term debt.

The fourth phase of the privatization program began in the government of Fernando Henrique Cardoso. The National Privatization Council (CND) was created. Since its members are Ministers of State, major decisions are taken at the highest level of the government. From January to August, the government sold Escelsa for US$385.7 million and COPENE for US$256.5 million, and transferred to the private sector debts totaling US$342.6 million.

The new structure of the privatization program extends its scope and gives it more authority to take significant decisions. The Council decided to maintain the existing privatization time schedule, which means that the 14 petrochemical companies will be privatized by December 1995, the privatization of Banco Meridional will occur in the first half of 1996, and the railway system (RFFSA) will also be privatized

The federal government still owns about 100 companies. Of these, some 29% belong to the Ministry of Telecommunications, 5% to the Eletrobrás system, 13% to Petrobrás, and the others are small firms such as Serpro, Dataprev, and Datamec. A working group has been created to determine what should be done with these small firms and with companies such as ENASA, FRANAVE, and LLOYD.

The passage of the Law of Concessions was an important benchmark for the privatization program. This law enables the government to include ports, highways and the electrical sector in the privatization program. The Council should soon present a proposal for including the ports. The Council has already included the Eletrobrás group in the program and appointed the Ministry of Mines and Energy to oversee the restructuring of the sector. The BNDES will lead in the privatization of Eletrobrás. The electrical sector poses challenges that have not been encountered previously. The earlier programs sold industrial companies without raising questions about regulatory issues or about competition. On the other hand, electrical service is a natural monopoly that must be regulated. Thus, the question of regulation becomes a crucial part of privatization. The challenge is to build a new regulatory framework for private companies providing public services.